Saturday, January 28, 2012

Accounts Receivable Collections - How to Get Late-Paying Customers to Pay on Time

Condition - Accounts Receivable Collections - How to Get Late-Paying Customers to Pay on Time

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Accounts Receivable Collections - How to Get Late-Paying Customers to Pay on Time

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A year or two ago, your company was probably running pretty smoothly, with sales and profits growing. And then the retreat and prestige crunch hit-a brutal double-whammy-and all started slowing down approximately overnight, along with your accounts receivable collections.

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Condition

Whether industrial or consumer,your customers started paying your accounts receivable later and later, as if they were using your money to fill their own personal prestige gap. Well, they probably are.

Most of us don't comprehend how dependent we are on prestige to run our businesses. Seller open list credit-the kind you increase to your customers-is by far the largest source of borrowing power in our economy. When you sell your products and services on credit, you are production interest-free loans to your customers, even if you are financing those loans with a bank loan on which you pay interest every month.

When accounts receivable collections roll in on time, it all seems to work out nicely. But when accounts receivable slow down, you still need to replace goods you've sold, pay your employees (on time), and pay the rent and all the other expenses of running a business. Assuming your bank prestige lines are in place and your margins are adequate, you'll have a bit higher interest cost but will be able to ride it out with your customers. However, if your prestige lines or cash reserves aren't enough to upholstery you from the sudden change in cash flow, your company could be in big trouble. Remember that

Strategies That Work

So your best bet is to encourage your customers to pay accounts receivable on time. "That's helpful," you're probably thinking, "but how do I do that, exactly?" Here are five ideas that may help you improve accounts receivable collections:

1. Improve your credit-granting practices. On the front end, screen new customers more intimately before granting them prestige lines. Spend a few dollars legitimately obtaining a prestige narrative and a few minutes calling a combine of prestige references to get a sense of the connection they have with your inherent customer. You might ask about their cost patterns when the cheaper slows, which could be separate from when times are good. A annotation that "they sometimes struggle to keep current but they always manage to get caught up" could be a red flag these days. Also, be watchful of a expectation who has changed suppliers more than once in the past year. If you can learn the name of their former supplier, that's man you should talk to.

2. Make a committed collection effort-all the time. At least one man in your company should be responsible for collections follow-up. Don't make the mistake of giving the job to your controller to cope in her "spare" time. She likely doesn't have any spare time, and besides, accounting personnel are not typically the best in buyer communication, especially if the subject is touchy. Assign the job to man who is a good negotiator, has an friendly but firm phone personality, and who understands this is a primary job. Most importantly, do what you say you're going to do. If you promise something in return for prompt payment, make sure you deliver. If you say you must deny hereafter shipments until an list is brought current, stick to it-every time.

3. Call customers before the cost due date. Have your collections man call the customer's Accounts Payable department a few days before the cost due date "as a courtesy" to make sure all is in order and that the check will be going out on time. This wee reminder, when positioned with friendliness and a desire to help, can make a friend of the man who legitimately cuts the check. If your buyer is lacking something they need in order to pay you, this would not be a good time to be condescending about their inefficiency. Your attempt to swiftly furnish it could put you at the head of the line for payment.

4. Offer discounts for prompt payment. This is a proven technique that worked well years ago, but has become less tasteless in up-to-date years as company practices evolved. The old '2/10 net 30' was, and still is, a extraordinary deal if explained to customers clearly. Reconsider that a 2 percent reduction for paying 20 days earlier than normal amounts to an every year return of 36 percent. That's not a bad yield for a buyer whose savings list is probably earning 2 percent a year or less. Even if your customers planned to pay in 45 days, getting them to pay in 15 days instead represents an every year return of 24 percent. You can juggle the numbers any way that makes sense in your industry, but the key is getting the buyer to understand the value they get from paying promptly. And some organizations, like many local governments, are required by their policies to take benefit of such discounts.

5. Originate a "Preferred Customer" plan. Want to think out of the box? Reconsider creating a extra agenda for "special" customers that offers services like free overnight delivery on rush orders, extra discounts, expand notice of price changes, extra sales, etc. Promote this as a buyer benefit and make it ready only under inevitable conditions, one of which would be consistent cost in accordance with your terms. Don't make sheer order volume a condition if your low-volume customers produce higher margins, as is often the case. A small invoice that gets paid on time is a blessing compared to a large one that takes 90 days to come in. Make the conditions list beefy enough that it doesn't look like a poorly disguised collection program. Use it as an chance to repaymen the customers you enjoy doing company with, especially those who pay on time every time.

Meeting Expectations

While you can appreciate your customers' dilemma in trying to stretch their cash, that's not the same as according to be their banker-interest free. You can increase their cost terms, as many fellowships do while times like these, but in the end you still need to derive your money by a date you can plan on. Of course, you also need to avoid alienating your customers in the process. But if you do all you said you would-provide ability products at contentious prices with prompt delivery-then it's uncostly to expect your customers to do all they agreed to, along with paying you on time.

But the fact is, most suppliers will get paid late by many of their customers while tough economic times.By succeed these suggestions, though, you can be the irregularity to the norm-and best positioned when the cheaper turns colse to again, as it always does.